What to do to avoid the taxes and penalties around loosing a home?

In a second (investment) property I learned that once loosing it to the bank or with short sale, not only you loose the property value but also you will have to pay taxes on the mortgage paid that you cannot return. Since the mortgage bank loaned money that cannot be returned now that money is taxable as "profit". Does all those or similar cases have to end up with declaring bankrupcy to avoid all this money burdain or is there another solution?